On account of both geology and choice, Europe will never have low-cost energy supply; rather than price, the issue at stake is to ensure security of energy supply. The EU’s energy-intensive industries (EII) should nevertheless receive policy support that ensures they compete on an equal basis with imports.
This was the conclusion of a panel on industry during crises as part of the European Economic Congress in Katowice this week attended by Kallanish.
“A good energy price is not a high or low price, it’s a price that our competitors have. Without that, we have to say it honestly, investments involving a large use of energy, whether it’s electricity or gas, will be difficult,” said Weglokoks chief executive Tomasz Slezak.
“Fundamentally, we are in a losing position. All of the European Commission’s efforts, they amount to guesswork, because there are no remedies for this. The market works on the basis of marginal cost … set by gas sources or coal after accounting for CO2 costs. This means that we will always have expensive energy, whether we invest a lot into renewables or not, because the stabilisation of the system will always need marginal sources,” he added.
The lack of prospects for low-cost energy means the EU needs to consider establishing new industries to drive economic growth that do not consume energy so intensively, warned Adam Sikorski, chief executive of Polish fuel importer Unimot.
“It is fundamentally not possible” for Europe to have energy prices as low as the US, which is a net exporter of gas, he noted. The import of LNG into Europe requires the gas to be liquefied, transported, then regasified. This all involves costs. On account of geological conditions and the choice made to not mine hydrocarbons, Europe will not be competitive, he added.
“A [European] data centre will, as a result of the energy it uses, never be competitive against the US,” he said. Nuclear energy has to be built out, “but we’re not saying this in the context that energy prices will drastically come down because … we know how much nuclear energy will cost per MWh … We’re talking here about energy being available and not being cheap.”
In the case of EII, “we can either subsidise it and decide as taxpayers that we need this industry strategically … or we look for advantages in other areas,” he suggested. However, in competition with China, it will not be an easy task for Europe to find unique new economic drivers.
ArcelorMittal Poland chief executive Wojciech Koszuta countered: “I can’t agree that we have to subsidise energy-intensive industries. We will manage; we just want to have an equal chance with importers.” CBAM is the first step towards equalising conditions with importers who are not subject to ETS costs, he added.
Ignacy Niemczycki, secretary of state at Poland’s foreign affairs ministry, said renewables will in fact be able to provide low-cost energy with the use of instruments such as contracts for difference. However, “the model does not work in Europe the way it should at the moment,” he conceded.
Asked what needs to happen in the coming year to support industry, Slezak concluded: “Without a doubt, the entire ETS system needs reforming … We’re all concerned about the climate, but the system is wrongly configured. It puts huge costs on the economy and that has to change. Europe should adapt the Chinese model. That’s what you call real sustainable development. Not punishing but rewarding [industry]. Penalising amounts to nothing.”
Without energy market reform, meanwhile, “especially for those traditional industries, Europe really will not produce any value,” he said.
Author: Adam Smith
